The Effect of Immigration on the UK Economy | IAS (2024)

Effects on the Tourism Sector

One of the least discussed elements of immigration to the U.K., but also the most prevalent, is tourism, with 49% of all visas in 2022 being classed as visitor visas. Although there are various reasons why someone may use avisitor visa, they do not allow the holder to undertake paid work, and as such, they must have means to support themselves while in the country.

Each visitor visa represents additional income brought to the U.K. from other nations. In 2019 visit Britain calculated that inbound tourism contributed £28.45 billion to the economy.

Despite a drop in visitation rates since then due to travel restrictions during the Covid-19 pandemic, 2022 saw a slight decrease to £26.5 billion, although it should be noted this was despite a 24% drop in visitation. While this may represent increased spending among visiting groups, this may also be attributable to a generally higher cost of items and accommodation between 2019 and 2022.

Effects on the Education System

22% of the visas granted in 2022 were for international students to study in the U.K., the second largest grouping after visitor visas for the year. As international students are ineligible for student loans in the U.K. and are exempt from the tuition fee cap, they make a sizeable financial contribution to the U.K. economy each year.

A recent joint study by London Economics, the Higher Education Policy Institute, Universities UK International and Kaplan International Pathways found that in the 2021/22 academic year, international students added £41.9 billion to the U.K. economy. Additionally, they found that the cost of these students and their related dependants was a total of £4.4 billion, mainly comprising the cost of public services.

This represents a net benefit to the U.K. economy of £37.4 billion, combining part-time work earnings, university fees and general living costs/purchases made. It is worth noting that the current plans to reduce the number ofdependent visasgranted to international students could significantly impact the amount of money this sector can generate for the U.K.’s GDP.

Effects on Employment

Ever present in the conversation around immigration, however, is the concept of the ‘economic migrant’, meaning those who come to the U.K. to work, whether in the long or short term. Making up 15% of the visas issued for 2022, there are a few points to make regarding this section of those immigrating to the U.K.

However, Things become more complicated when we examine the contributions made by those born overseas working in the United Kingdom. The most obvious way to work out their contribution is to deduct the cost of their stay in the U.K. (public services, health costs, benefits etc) from the amount they contribute via income taxation.

According to HMRC’s data for the most recently available year (2018-19), EEA and Swiss nationals paid £22.4 billion more in national insurance and tax contributions than they received in tax credits and child benefits (the benefits available).

Non-EEA nationals paid £20 billion more than they received. This would suggest a net contribution of £42.4 billion to the economy from overseas citizens working in the U.K.

As we can see from those present on astudent visa, however, income from employment (as student visa holders are limited to 20 hours per week) is not the only way visa holders in the U.K. directly contribute to the economy.

While the above figures help obtain a basic understanding of the contributions of work visa holders, it leaves out several key factors, such as VAT on purchases made in day-to-day life.

Previous studies have found that, in general, migrant workers have a positive net contribution but that this statement is not spread evenly across all migrant groups. An Oxford Economics study 2018 found that Non-EEA migrants contributed a net negative of £800 compared to the average U.K.-based adult.

They attributed this to the higher number of dependent children associated with Non-EEA migrants, which meant a higher cost to the state in terms of education. EEA migrants, however, were found to contribute a net positive £2300 per person in comparison.

Unfortunately, this is the most recent data available at present. The EEA to Non-EAA migration level may have been significantly altered due to the U.K. leaving the European Union and the subsequent loss of the ‘right to roam’ for EU citizens in the United Kingdom.

Effects on Population Growth and Decline

Another factor, however, is the general age demographics migrants fall into. When considering the population of those in the U.K. with citizenship, you need to factor in those who are both economically active (of working age and in employment or self-employed) and those who are economically inactive (school children, retiree or those not in professional and not actively seeking work).

This is described by some economists as the dependency ratio, meaning that the economically inactive are technically dependent on the state while the financially active help maintain the country’s finances.

Those immigrating to the U.K. for reasons other than study are more likely to fall into the working age demographics and be economically active. With recent changes to the immigration system within the U.K., the government is actively encouraging those with higher skills and employability to move to the U.K. to fill vacant positions.

While this means that those coming to the U.K. will generally earn higher wages, they also help sway the dependency ratio to favour those who are economically active. This is increasingly important in a nation where the population is ageing but has lesser overall population growth, such as in Scotland, where birth rates have dropped by a fifth in the past ten years while people live longer on average.

Scotland, in particular, is suffering in this capacity. Still, the birth rates in all nations of the U.K. have begun to lower, and as such, Immigration can be seen as vital to maintaining the working-age population should this trend continue.

What Can We Learn?

From the above, we can conclude that, at present, the U.K. economy generally benefits from immigration. Whether moving to the U.K. to study or work, immigration often provides an economic net benefit to the U.K. economy, as well as helping to maintain the working-age population while also plugging the current skills gap in many industries.

While specific demographics trend towards a negative contribution during their time in the United Kingdom, the current push towards higher-skilled workers and the inaccessibility of public funds to most visa holders means that, in general, the immigration system encourages immigrants who will make a positive impact.

Additionally, we can see the impact that the availability of visitor visas can have on the tourism industry and that although the cost of living is rising in the U.K., that does mean increased spend for those here in the short term, which equates to a higher contribution in local economies from visitors.